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Income Statement:

An income statement shows the results of operating for a period of time. It is sometimes called operating statement or statement of operations. It shows how well an organization performed during the period covered.

The term revenue, expense and profit should be somewhat familiar to you already. Revenue is the inflow of assets in return for services performed or products delivered during a period; an expense is a sacrifice, or cost incurred to generate (produce) revenue; net profit is simply the amount by which the revenues for a particular period of time exceed the expenses incurred to generate them.

Revenue generally considered earned when services are performed or goods are sold, regardless of when money is actually received. In other words, revenues are identified with the period in which they are earned. For example, a retail trader earns revenue when a sale is made on credit. A right to receive money is recognized as account receivable. An account receivable (debtor a/c) is an asset that will eventually be converted to cash.

Expenses are also recognized in the period that is benefited, regardless of when payment is made in cash. For example, salaries earned by employees are considered an expense of the period in which employees work, even though they may not be paid in cash until the following period. Thus the amount by which the revenues for a particular period of time exceed the expenses incurred to generate them is called net income or net profit.

For example suppose during the month of January, a trader has a total revenue (sales) of $55,000 and has incurred total expenses of $46,000, his net income will be $9,000 (55,000 – 46,000) for the month of January.

Thus an income statement is a statement in which revenues for a period of time are matched with expenses for the same period of time. If revenues exceed the expenses, the result is net income, and if expenses exceed the revenues, the result is net loss. The format of income statement varies with the needs of users, preferences of accountants and other circumstances.

Income

While money may not buy happiness, it is an important means to achieving higher living standards and thus greater well-being. Higher economic wealth may also improve access to quality education, health care and housing.

Household net adjusted disposable income

Household net adjusted disposable income is the amount of money that a household earns, or gains, each year after taxes and transfers. It represents the money available to a household for spending on goods or services.

Household adjusted disposable income includes income from economic activity (wages and salaries; profits of self-employed business owners), property income (dividends, interests and rents), social benefits in cash (retirement pensions, unemployment benefits, family allowances, basic income support, etc.), and social transfers in kind (goods and services such as health care, education and housing, received either free of charge or at reduced prices). Across the OECD, the average household net adjusted disposable income per capita is USD 30 563 a year.

Household net financial wealth

Household net financial wealth is the total value of a household’s financial worth, or the sum of their overall financial assets minus liabilities. Financial wealth takes into account: savings, monetary gold, currency and deposits, stocks, securities and loans. These financial assets can provide an important source of revenue on their own; either through their sale or refinancing, via pensions, via interest and dividend payments, or other property income. Ideally, measures of household wealth should also include non-financial assets (e.g. land and dwellings), but such information is currently available for only a small number of OECD countries, and is not included here.

Financial wealth makes up an important part of a household s economic resources, and can protect from economic hardship and vulnerability. For example, a low-income household having above-average wealth will be better off than a low-income household with no wealth at all. Across the OECD, the average household net financial wealth per capita is estimated at USD 90 570.

The cost of living is taken into account in income and wealth figures as the reported values are adjusted by Purchasing Power Parities (PPPs). PPPs reflect the differences in cost of living for a comparable amount of goods and services consumed by households.

Over the most recent years, households have enjoyed higher income on average and financial wealth has increased in many OECD countries. Despite the general increase in living standards, some groups have been left behind and inequality has also increased over the same period. On average in OECD countries, the average net-adjusted disposable income of the top 20% of the population is an estimated USD 64 103 a year, whereas the bottom 20% live on an estimated USD 10 045 a year. Some OECD countries such as Australia, Luxembourg and the United States, have a much more unequal income distribution than others.

Income Statement | Profit & Loss Account

Income Statement, also known as Profit & Loss Account, is a report of income, expenses and the resulting profit or loss earned during an accounting period.

Following is an illustrative example of an Income Statement prepared in accordance with the format prescribed by IAS 1 Presentation of Financial Statements.

Income statement is prepared on the accruals basis of accounting.

This means that income (including revenue) is recognized when it is earned rather than when receipts are realized (although in many instances income may be earned and received in the same accounting period).

Conversely, expenses are recognized in the income statement when they are incurred even if they are paid for in the previous or subsequent accounting periods.

Income statement does not report transactions with the owners of an entity.

Hence, dividends paid to ordinary shareholders are not presented as an expense in the income statement and proceeds from the issuance of shares is not recognized as an income. Transactions between the entity and its owners are accounted for separately in the statement of changes in equity.

Components

Income statement comprises of the following main elements:

Revenue

Revenue includes income earned from the principal activities of an entity. So for example, in case of a manufacturer of electronic appliances, revenue will comprise of the sales from electronic appliance business. Conversely, if the same manufacturer earns interest on its bank account, it shall not be classified as revenue but as other income.

Cost of Sales

Cost of sales represents the cost of goods sold or services rendered during an accounting period.

Hence, for a retailer, cost of sales will be the sum of inventory at the start of the period and purchases during the period minus any closing inventory.

In case of a manufacturer however, cost of sales will also include production costs incurred in the manufacture of goods during a period such as the cost of direct labor, direct material consumption, depreciation of plant and machinery and factory overheads, etc.

You may refer to the article on cost of sales for an explanation of its calculation.

Other Income

Other income consists of income earned from activities that are not related to the entity’s main business. For example, other income of an entity that manufactures electronic appliances may include:

Gain on disposal of fixed assets

Interest income on bank deposits

Exchange gain on translation of a foreign currency bank account

Distribution Cost

Distribution cost includes expenses incurred in delivering goods from the business premises to customers.

Administrative Expenses

Administrative expenses generally comprise of costs relating to the management and support functions within an organization that are not directly involved in the production and supply of goods and services offered by the entity.

Examples of administrative expenses include:

Salary cost of executive management

Legal and professional charges

Depreciation of head office building

Rent expense of offices used for administration and management purposes

Cost of functions / departments not directly involved in production such as finance department, HR department and administration department

Other Expenses

This is essentially a residual category in which any expenses that are not suitably classifiable elsewhere are included.

Finance Charges

Finance charges usually comprise of interest expense on loans and debentures.

The effect of present value adjustments of discounted provisions are also included in finance charges (e.g. unwinding of discount on provision for decommissioning cost).

Income tax

Income tax expense recognized during a period is generally comprised of the following three elements:

Current period’s estimated tax charge

Prior period tax adjustments

Deferred tax expense

Prior Period Comparatives

Prior period financial information is presented along side current period’s financial results to facilitate comparison of performance over a period.

It is therefore important that prior period comparative figures presented in the income statement relate to a similar period.

For example, if an organization is preparing income statement for the six months ending 31 December 2013, comparative figures of prior period should relate to the six months ending 31 December 2012.

Purpose & Use

Income Statement provides the basis for measuring performance of an entity over the course of an accounting period.

Performance can be assessed from the income statement in terms of the following:

Change in sales revenue over the period and in comparison to industry growth

Change in gross profit margin, operating profit margin and net profit margin over the period

Increase or decrease in net profit, operating profit and gross profit over the period

Comparison of the entity’s profitability with other organizations operating in similar industries or sectors

Income statement also forms the basis of important financial evaluation of an entity when it is analyzed in conjunction with information contained in other financial statements such as:

Change in earnings per share over the period

Analysis of working capital in comparison to similar income statement elements (e.g. the ratio of receivables reported in the balance sheet to the credit sales reported in the income statement, i.e. debtor turnover ratio)

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The contents of this website should not be construed as an exhaustive statement of law. In case of doubt, reference should always be made to the relevant provisions of the Direct Tax Laws and Rules and where necessary, notifications issued from time to time. Content provided by Income Tax Department, Mumbai. For any clarification regarding content, please contact the PRO, Income Tax Department, Mumbai.

There are many ways that you can make a payment to Canada Revenue Agency (CRA) and with tax season coming up shortly it is a good time to review the most commonly used payment options that are available including online banking, in personal at your financial institution, or by mail. В Whichever method you choose, it is important to ensure your payment is made on time in order to avoid potential late payment penalties or interest charges.

Most financial institutions allow you to make payments to CRA in a similar way to paying a utility or phone bill. When adding a payee look for Canada Revenue Agency or CRA. Your financial institution may have payees available for вЂњtax instalmentвЂќ, вЂњ2014 tax owingвЂќ, or вЂњpast tax owedвЂќ. It is best to select the correct option, but even if you select the wrong option the allocation of the payment can be corrected once it is received by CRA. However, be sure to enter the correct account number (social insurance number if you are making a personal payment or business number if you are making a payment for your business) to avoid a lost or misapplied payment.

Call your financial institution if you have questions on how to make a payment to CRA through online banking.

In Person at your Financial Institution

You can make a payment in personal at any financial institution in Canada. However, in order to do so you will need a remittance voucher. Remittance vouchers for business payments are included with statements of account received from CRA and can also be requested from CRA by calling 1-800-959-5525. Remittance vouchers for personal payments are included with statements of account received from CRA and are also available from our office on request.

Cheques should be made payable to вЂњReceiver GeneralвЂќ and you should note the social insurance number or business number, as applicable, on the memo line of the cheque along with the year for which the payment is being made. This assists CRA in properly applying your payment. Some examples are noted below:

For a 2015 personal tax instalment write, вЂњ123 456 789 вЂ“ 2015 InstalmentвЂќ on the memo line of the cheque, replacing 123 456 789 with your actual social insurance number.

For a 2014 GST payment write вЂњ12345 6789 RT0001 вЂ“ 2014 Balance OwingвЂќ on the memo line of the cheque, replacing 12345 6789 with your actual business number.

You may also mail your payment to CRA, using either a cheque or money order, to the following address:

Canada Revenue Agency

Ottawa ON K1A 1B1

Again, payments should be made payable to вЂњReceiver GeneralвЂќ and you should note the social insurance number or business number, as applicable, on the memo line of the cheque along with the year for which the payment is being made. This assists CRA in properly applying your payment. Some examples are noted above.

If you have a remittance voucher you should complete it and including it in the envelope with your cheque, but it is not required. If you do not include a remittance voucher with the payment be certain to make the correct notes on the memo line of the cheque or money order, otherwise CRA may not be able to properly process the payment.

You can set up pre-authorized debit for payments to CRA either through online banking with your financial institution or through CRA using the My Account service (personal) or My Business Account service (business). CRA also accepts post-dated cheques.

Please contact our office if you have any questions about how to make your payment to CRA or if we can be of further assistance.

6 Home Based Business Tax Deductions You Don’t Want to Miss

Running a home based business in Canada is just like running any other business when it comes to income taxes. Assuming you have an income to write it off against and you follow the rules, you can deduct a host of business expenses, lowering the amount of income tax you have to pay.

But one of the advantages of running a home based business is that there are additional income tax deductions that you can claim. What follows is not an exhaustive list, but rather six of the most common Canadian home based business tax deductions. How many of these apply to you?

Continue to 2 of 7 below.

Many Canadian home based business owners use their personal vehicles as business vehicles. From a tax standpoint this is advantageous, as you can still claim the business portion of vehicle use expenses, including:

Fuel and oil

Licensing and registration

Insurance – note that supplemental insurance for business purposes (which you should have) is fully deductible. If your vehicle is not insured for business use and you have an accident while on business your insurance company is likely to deny your claim.

Maintenance and repairs

interest on money you borrow to buy a motor vehicle, automobile, or passenger vehicle you use to earn income” (Canada Revenue Agency). Note that there is a limit to the amount of interest you can deduct on money you borrow to buy a passenger vehicle.

Leasing costs

Accident repairs – if you have a car accident while driving for business purposes you can deduct the entire cost of the repairs

Vehicle expenses are itemized on the motor vehicle section of the T2125 Statement of Business or Professional Activities.

Tax Tip: As you can deduct only a portion of your automobile expenses when you have a vehicle that you use for both business and personal use, the Canada Revenue Agency (CRA) requires that you keep a record of the total kilometres you drive and the kilometres you drive to earn income to “support your claim”. Your automobile expenses claims are prorated for the business portion of the total kilometers driven in a tax year.

In the example they give in Business and Professional Income, they actually use these figures to figure out how much the deductible business expenses are. (“Paul’s” business kilometres are divided by his total kilometres driven and multiplied by his total vehicle expenses to form the basis of his claim.) Vehicle log books are available from office supply stores.

Continue to 3 of 7 below.

As “you can deduct all regular commercial insurance premiums you incur on any buildings, machinery, and equipment that you use for your business”, (T4072 Small Business Information Seminar Module III Income Tax), home-based business insurance should qualify.

Home-based business insurance is essentially commercial in nature and is entirely separate from a person s home insurance. (In fact, if you are running a business out of your home and don’t have home-based business insurance, you’re running the risk of not being covered at all if something happens, because running a home business that your insurer is not aware of may invalidate your home insurance policy).

So you ll definitely want to get home-based business insurance for your own protection – and then use it as a business deduction.

Tax Tip: You may also write off a portion of the cost of your home insurance if your home- based business meets the conditions for claiming business-use-of-home expenses (see 4. Other Business-Use-of-Home Expenses below). If applicable, this expense would be part of the expenses that you claim on line 9945 of the T1 form).

Even if your office is just a part of a counter in the kitchen, your home-based business will have office expenses to claim. The catch here is to distinguish between office expenses (things such as pens, stamps and paper clips, which you claim on line 8810 of the T1 income tax form) and depreciable assets (things such as filing cabinets, desktops/laptops, mobile devices, printers, and other equipment which fall under the rules of Capital Cost Allowance).

Because depreciable assets wear out over time, you can only claim a portion of their original cost as a tax deduction each year. How much you can claim as a tax deduction depends on what the asset or property is; the Income Tax Regulations have divided depreciable assets into different classes with different percentage rates of Capital Cost Allowance. This Capital Cost Allowance hub on the Canada Revenue Agency s site includes a guide to the common classes of depreciable property.

Tax Tip: You don t have to claim Capital Cost Allowance in the year that it occurs and rolling your Capital Cost Allowance Claim forward may lower your taxes later on when you can use it to offset a higher income. For more on this see 8 Small Business Tax Strategies to Reduce Income Tax.

Continue to 5 of 7 below.

Learn how to start your own business or side hustle, and discover strategies to attract customers and pump up your profits.

If you are carrying a mortgage on your home and running a home based business, you can claim your mortgage interest under Business-use-of-home expenses – assuming your business meets the requirements for Business-use-of-home deductions.

Generally, you can deduct expenses for the business use of a work space in your home as long as:

the work space is your principal place of business; or

you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients (Canada Revenue Agency).

If you own your own home and are running a home-based business, you can also claim your property taxes as expenses.

If you are renting, you can deduct the cost of your rent.

There is a catch, however; you can only deduct a portion of these expenses, dependent on how much of your living space and time is actually devoted to business use. Calculating the Home-Based Business Tax Deduction explains how to do this step by step.

Tax Tip: From the Canada Revenue Agency: “You can use the chart Calculation of business-use-of-home expenses on Form T2125 to calculate your allowable claim for business-use-of-home expenses. The expenses you claim on line 9945 must not be claimed elsewhere.

Besides mortgage interest, property taxes and/or rent, there are other expenses that home business operators who qualify for business-use-of-home deductions can claim.

Some of the most common of these are:

Remember, “you can deduct any reasonable current expense you incur to earn business income” (Canada Revenue Agency) for your home-based business. But, as you read in point 4, you can only deduct the portion of these expenses related to business use and what you claim here can’t be claimed elsewhere. No double dipping!

Tax Tip: From the Canada Revenue Agency: “Purchases and business expenses must. be substantiated with a sales invoice, agreement of purchase and sale, a receipt, or some other voucher that supports the expenditure.”

Continue to 7 of 7 below.

You can’t use business-use-of-home expenses to create or increase a business loss. So if you end up with having more expenses than income for your home business, you will have what the Canada Revenue Agency calls unused Work Space in Home Expenses which you can carry forward into the next year.

Like the unused Capital Cost Allowance claim, the beauty of this is that you don’t necessarily need to claim these expenses in the tax year following either. If your home business continues to meet the conditions for claiming business-use-of-home expenses, “an indefinite carry forward is provided” (CRA) meaning that you can use these unclaimed expenses when it’s convenient to offset higher income in a later year.

Like everything else related to taxes, meticulous records are a must; all your deductions need to be documented with receipts. But if you have a home-based business, these are tax deductions you don’t want to miss.

There are many other income tax deductions available to small businesses in Canada that you can read about in these articles:

All potential tax deductions are worth checking out yourself and/or discussing with your accountant – which is also a tax deduction!

5 Ways to Pay Your Personal Canadian Income Taxes

The Canada Revenue Agency (CRA) provides a variety of ways to pay the balance on your Canadian personal income taxes. You can mail a check, pay using online or telephone banking, use the CRA s My Payment Service or pay at a Canadian financial institution.

Payment for the balance owing on line 485 of your tax return is due by April 30 of the year following the tax year. If you owe Canadian income tax, the CRA charges both penalties and interest for filing your income taxes late.

When you make a payment, be sure to provide accurate information to identify the account to which the payment should be credited and what the payment is for (the tax year for example). When the CRA asks for your Account Number they are asking for your Social Insurance Number for personal income taxes and your Business Number for business income taxes.

Attach a Check or Money Order to Your Paper Return

If you file a paper income tax return, attach a check or money order to the first page of the return. The check or money order should be payable to the Receiver General. Put your Social Insurance Number on the front of the check or money order. Here are the mailing addresses for sending a paper return.

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Use Online or Telephone Banking

You can use your online or telephone banking to pay the CRA the same way you pay your other bills. Select The Canada Revenue Agency, Revenue Canada, or Receiver General in the list of payees. Make sure you identify the type of account (personal or business), Social Insurance Number or Business Number, and reporting period or tax year to which you want the payment applied. Contact your bank if you need help.

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Use the My Payment Service

The CRA My Payment service lets you pay the Canada Revenue Agency directly using Interac Online if you have an online banking account with any of the following banks:

Bank of Montreal (personal accounts only)

Scotiabank

RBC Royal Bank

TD Canada Trust

The transaction total must be within the daily or weekly withdrawal limit of your online banking account.

For more information on the My Payment service, see the CRA s My Payment FAQ.

Pay at a Canadian Financial Institution

You can pay your personal income taxes by check or money order at your bank, but you must attach a personalized remittance voucher.

Remittance vouchers are pre-printed in specialized ink, so copies are not valid. Remittance vouchers can be ordered online from the CRA through the My Account Tax Service or by phone at 1-800-959-8281.

The check or money order should be made payable to the Receiver General and include your Social Insurance Number on the front.

Continue Reading Below

Mail a Check or Money Order

Make the check or money order payable to the Receiver General and include your Social Insurance Number on the front.

The CRA prefers that you complete and attach a personalized remittance voucher to the check or money order.

However, if you don t have a remittance voucher, you can attach a note to the check or money order indicating your Social Insurance Number and providing payment instructions (e.g. This payment is to cover the Balance Owing on Line 485 of my 2016 income tax return filed [date] using [NETFILE]. )

Your Introduction to T4 Slips and Other Canadian Income Tax Slips

What Is a Canadian T4A Tax Slip?

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How to link your Aadhaar and PAN details to file income-tax returns

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The Finance Act, 2017 has made it mandatory to quote your Aadhaar number while filing your income tax return with effect from 1 July 2017. For this purpose, you need to link your Aadhaar with the permanent account number (PAN). However, many were finding it difficult to link Aadhaar with PAN, due to details mismatching on these two documents. In order to solve this problem, Central Board of Direct Taxes (CBDT) has come out with a simple solution.

Link your Aadhaar

Minor discrepancies like different names in the two documents say names with initials in one and expanded initials in another were earlier creating problems. This has now been solved.

To link your Aadhaar with PAN, just go to www.incometaxindiaefiling.gov.in and click on the tab Link Aadhaar on the left-hand side of the website. First, fill out your PAN and Aadhaar number; then enter your name exactly as mentioned in Aadhaar and then submit it. After verification of details from the Unique Identification Authority of India (UIDAI), the linking will be confirmed.

However, if there is any minor mismatch in your Aadhaar name, a one-time password (OTP) will be sent to your Aadhaar-registered mobile number. Make sure that the date of birth and gender in PAN and Aadhaar are exactly the same. There is no need to even login or be registered on the e-filing website.

If you are already registered on the e-filing website, you can link your Aadhaar after logging-in to the e-filing website. Just click on the Aadhaar linking option under profile settings. The details as per PAN will be pre-populated and you only need to enter your Aadhaar number and name exactly as mentioned in Aadhaar. Once you link your Aadhaar with PAN, you will be able to e-verify your income tax return using OTP sent to your mobile.

If your Aadhaar name is completely different from your name in PAN, then the linking will fail and the taxpayer will be prompted to change the name in either Aadhaar or PAN database.